City Government

SkyWest Will Lease City-Financed Structure Tax-Free

The GUARDIAN confirmed Tuesday that SkyWest Airline will lease a planned $23 million maintenance facility tax-free from the city of Boise. This means Boise Schools, City of Boise, Ada County, and ACHD will forego an estimated $380,000 in taxes on the city financed project EVERY YEAR!

Thanks to a constitutional amendment passed three years ago, airports are able to go into public debt through bond sales without a vote of the people. Boise will issue the bonds and depend upon rental payments from SkyWest to cover the debt. We should apparently ignore the recent bankruptcies of United, Delta, American, and most other carriers.

Despite a less than rosy financial picture for SkyWest, Boise has forged ahead courting the financially troubled carrier to locate the maintenance facility here. The WALL STREET JOURNAL reports the carrier is forecasting a full year loss, but hopes to avoid bankruptcy. The firm plans to divest itself of 156 aircraft in a cutback effort while at the same time claiming to create or bring 100 “high-paying jobs” in Boise after an initial 50 jobs are offered.

Since the city will own the facility–touted as being worth $23,000,000 by Mayor Dave Bieter earlier this year–it will be tax exempt.
Here is what we have learned:“Although there has been significant speculation about this project, Skywest just today (recently) announced that they have selected Boise for an aircraft maintenance base. City staff are still working with Skywest to finalize a number of agreements related to this project. The following are the answers to the questions you posed.”

–The final cost the facility has not yet been determined however, Skywest will pay for the facility through a long-term lease.

–The City does intend to issue bonds to pay for a portion of this project. The bond payments will be paid by the lease revenue generated from Skywest’s lease of the facility.

–Members of the City Council were provided a general overview of the potential project. City of Boise staff were asked to negotiate an agreement that complies with policies and guidelines as set forth and approved by the City Council. Any contracts or lease agreements will be reviewed and approved by the City of Boise City Council through the normal Council process.

And if Boise’s concessions aren’t enough, the state of Idaho is offering up a 25% tax rebate as well, thanks to House Bill 546 signed into law last session. Called the “Idaho Reimbursement Incentive Act,” (I.C 67-4737) the new law is frightening in the power it vests in non-elected officials, especially the director of the Department of Commerce. For every dollar of taxes generated in wages, 25 cents is rebated. The 25 cents comes out of the pockets of all taxpayers, not just the SkyWest workers. If SkyWest were to make a profit and pay corporate taxes, they would get the same 25% rebate…again from the citizens of Idaho.

SkyWest operates various routes for the so-called “legacy carriers” such as United and Delta. Bieter said on a recent radio broadcast that in terms of numbers of aircraft, SkyWest is the largest airline in the country.

A lease of government property by a private company is not tax exempt. Much of the property around the airport is owned by the city and the leases are on the tax rolls as “O” parcels.

EDITOR NOTE–Joe, there is absolutely NO TAX on government-owned property period! In the case of existing private businesses at the airport–such as United air freight, Fed-X, UPS, Jackson Aviation–each of those structures was built and is owned by the private commercial businesses. They pay taxes on the structures, but not on the underlying public land. In the case of SkyWest, the city will actually build and own the building. It would be great if the building was either taxed or paid fees in lieu of taxes.

Conversely, if a U.S. Post Office leases space in a PRIVATE building the structure is taxed just as it would be with a private tenant. Ownership determines taxability, not occupants.

Joe, the editor is 100% correct. About 15 years ago, the City purchased several leasehold improvements where the owner was leasing the city owned land and paying taxes on the improvements. Then converted to a full land and improvement lease. Taxpayers lost the property tax revenue from the improvement and now the higher full lease payment going to the city/airport. With no property tax, the city can charge a higher lease rate since the tenant no longer has the property tax burden. The lost property tax revenue is then collected from all other Ada County taxpayers.

Then more hidden costs. No tax revenue to support all the additional public services. Since it is Boise City, I suspect building permits fees and the sewer, water, parks and ACHD impact fees are also waived.

Would be interesting to see how the facility is financed. If the city uses tax exempt bonds, then usually only about 10% of the building can be used for private uses.

Like it or not, this is how the big boys play, and if Boise does not play the game we loose. It is hard to fault Boise, for doing something every other city is doing. I have two concerns:

1) As stated by others the facility is financed with the lease revenue to service the debt, yet such debt and lease agreements are easily modified or discharged in bankruptcy court, so a close credit evaluation of SkyWest should occur. One one hand the industry is fickle with many mergers, consolidations and bankruptcies. On the other hand SkyWest has entered into new purchasing contracts for 200 more aircraft in the next 5 years, a sign Skywest sees growth and success. Would hope that the Skywest parent company is liable to the lease, not some locally created new LLC division of SkyWest or smaller subsidiary of SKywest which would make bankruptcy even more easy.

2) These incentives always seem to go to big business, yet the local governments seems to persecute locally owned small businesses. I have developed and owned 5 small business at various times, and government was always a hindrance, viewed my business as small potatoes and offered nothing to me but fees and obstacles, yet when an out of state big boy knocks on the door, they roll out the red carpet and public checkbook, and fast track all the approval processes, waive fees and taxes and entitlements. Try to start a new local small business and ask the City and ACHD to provide tax incentives, waive fees and fast track approvals, see how quickly they laugh at you.

Horizon Air is slowly being shrunk into nothing as the more employee-cost-efficient… and better managed non-union Sky West (and other puddle-jumpers are expanded.)

But what’s with the tax free part? And do the dopes at the city understand they are not really gaining anything as Horizon’s existing maintenance facility in Boise shrinks. And do they realize that the same handful of major airline executives are controlling both Horizon and Sky West? Maybe they do and don’t want to tell us that part?

Also wondering if they will be doing engine runs on our airport? And if so, will the city require Sky West to build a Hush-House so those within 5 miles of the airport don’t have to listen to jet engines running at full throttle all night long?? May brand new homes within city limits and within 2-3 miles of this facility. Planning?? So many people work for the city with the title “planner”, but seem to be yes men/women.

BTW: While on an airport story: Perhaps it’s time for another F-35 noise and pollution story… lest we forget the same Mayor who hates lawnmowers due to noise and emissions… is perfectly OK with 75 F-35s in Boise.